Exceptions to ‘Windfall’ Provision

The “Windfall Elimination Provision” reduces an individual’s own earned Social Security benefits if the worker put in less than 30 years of “substantial” Social Security-covered work (in 2009, $19,800), and imposes a phased-in reduction for those with between 20 and 30 years of such work. The provision primarily is of interest to those under the CSRS retirement system, who often manage to earn enough credits under Social Security even though Social Security is not part of the basic CSRS system, through military service, or civilian work before, after, and sometimes on the side during, their CSRS careers.

Various proposals have been raised to either abolish the provision entirely or to apply it only if the combined monthly amount is at least $2,000, with a phased-in reduction for amounts between $2,000 and $3,000. Under current policy, the maximum reduction works out to about $370 a month.

However, there are exceptions to the penalty even under the current rules, which are worth knowing for those who think they might be affected. First, the modified formula does not apply to survivors benefits. It also does not apply to you if:

you are a federal worker hired after December 31, 1983 into the FERS retirement system;

you were employed on December 31, 1983, by a nonprofit organization that was exempt from Social Security and it became mandatorily covered under Social Security on that date;

your only work where you did not pay Social Security taxes was before 1957.

Also, the reduction in the Social Security benefit under the modified formula cannot be more than one-half of that part of the pension attributable to earnings after 1956 not covered by Social Security.